Gerald Herbert, The Associated PressBruce Greenstein, head of the Department of Health and Hospitals

The firms still must clear additional rounds of government evaluation, including \\by the federal agency responsible for the Medicaid program, before Medicaid recipients can join the new managed-care networks later this year. But the announcement is a key juncture for Gov. Bobby Jindal’s signature health-care initiative.

The program would shift more than two-thirds of the state’s 1.2 million Medicaid recipients – most of them children – to a system of coordinated-care networks designed to save taxpayer money and provide better care through coordination among doctors, hospitals and other medical professionals. Medicaid currently operates on a traditional fee-for-service model, with a recipient choosing any physician or other provider who accept the program and the provider billing the state after delivering a service.

Each network would operate statewide, meaning Medicaid recipients would choose which network to join. As with an open-market private insurer, the Medicaid recipient will receive an insurance card and receive care within the network of providers established by the firm that contracts with the state. The initial contracts will be for three years.

The state will pay three networks – Louisiana Healthcare Connections, Inc., a subsidiary of Centene; Amerihealth Mercy of Louisiana, Inc.; and AmeriGROUP Louisiana, Inc. – a monthly fee for each of its Medicaid enrollees. The firm then is responsible for managing the care of its patients, approving services and paying the providers within the network. State Health Secretary Bruce Greenstein said the pre-paid network contracts will require at least 85 percent of the fee to be spent on medical care, a medical-loss ration that conforms to the regulations for large-group insurance plans affected by the 2010 federal health care law.

Two entities – UnitedHealth of Louisiana Inc., and Community Health Solutions of America, Inc. – will operate as “shared savings” networks. Under this model, the state will continue to pay providers on a per-service basis, but the networks would be responsible for coordinating a patient’s health treatment among primary care physicians, specialty physicians and other service providers. The network's profit would be a management fee that is a portion of what the state calculates is saved through a reduction in unnecessary diagnostic tests, hospitalizations or other treatment.

The state’s largest insurer, BlueCross BlueShield of Louisiana, did not submit an application. In a May 13 letter to Jindal, CEO Mike Reitz told the governor “our actuaries … agree that it is not a feasible venture for us. Please know that up until today, we have explored multiple ways to make this work, but to no avail."

The coordinated-care population is estimated to command about $2.2 billion in spending the first year, about a third of the state’s Medicaid financing for the current fiscal year. The remaining $4.5 billion in the Medicaid budget includes, among other services: the Medicaid drug plan; nursing home care for the elderly; care for the disabled; and payments to hospitals to compensate them for treating the uninsured and underinsured, including state prisoners.

The Jindal administration estimates the new networks will save the state $135 million in fiscal 2012-13, the first full year of implementation.

The selections come after two years of wrangling among the Jindal administration, legislators, insurers and health-care providers. The April request emerged as a compromise meant to mollify Medicaid providers who were concerned that the program would cut their income. The new rules guarantee that providers within the networks will not be paid less than they would under the traditional fee-for-service matrix that will remain in effect for Medicaid beneficiaries outside the new program.

Many legislators complained during the recently concluded session that the governor shut them out of the planning process for a program that shifts almost 10 percent of the state operating budget to for-profit enterprises. The Legislature approved the concept last year as part of the 2010-11 budget, but the authorization was part of a group of late-session amendments that some legislators have since said were framed as technical, not substantive.

This year, lawmakers passed Senate Bill 207 that would have allowed the Legislature in 2014 – the end of the initial three-year contract period – to determine whether to extend or end the private networks. The measure also would have required Greenstein’s agency to submit detailed reports on the plan, their performance, enrollment figures and the number of denied claims. Jindal vetoed the bill.